Repo rate unchanged

"For some time we have emphasised that we are in a process of interest rate normalisation," SARB governor Lesetja Kganyago said in Pretoria.

"The lower inflation path gives us some room to pause in this process, particularly against the backdrop of continued weakness in the economy."

He said the domestic economic outlook remained subdued, despite an expected growth acceleration in the fourth quarter of 2014.

SARB's forecast for growth in 2015 has been revised down from 2.5 percent to 2.2 percent, and for 2016 from 2.9 percent to 2.4 percent.

"The MPC is aware that the moderation in inflation could raise expectations of lower interest rates," he said.

"The MPC is of the view that the bar for further accommodation remains high and would require a sustained decline in the inflation rate and inflation expectations."

Kganyago said the rand had also been affected by domestic factors, including the disappointing domestic growth and current account deficit outcomes and rolling blackouts implemented by Eskom.

"The rand is expected to remain sensitive to developments on the current account of the balance of payments, which measured six percent of GDP in the third quarter of 2014," he said.

The declining trend since 2011 of the non-oil commodity prices and the recent decline in the oil price represented a positive terms of trade shock that could have a favourable impact on the current account.

"However, this effect is expected to be limited, in part due to the possible constraining effects of load shedding on exports."

Kganyago said that the year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas maintained its recent downward trend and measured 5.8 percent and 5.3 percent in November and December respectively.

This was down from its recent peak of 6.6 percent in May and June 2014.

"This trend reflected continued moderation in food and petrol prices. Food price inflation measured 7.4 percent in December, down from 7.7 percent in November, while petrol prices declined by 5.5 percent," he said.

"By contrast, core inflation, which excludes food, petrol and electricity, remained near the upper end of the inflation target range, but moderated to 5.7 percent in December from 5.8 percent previously."

Inflation was expected to average 3.8 percent in 2015 after it averaged 6.1 percent in 2014, Kganyago said.

The previous forecast of inflation was 5.3 percent.

He said the decline in international oil prices prompted a downward revision of the oil price assumption in the SARB's forecasting model with a significant impact on the near-term inflation forecast.

However, the longer term impact will be dependent on the persistence of these lower prices. The prices have been a reaction to global supply and demand factors as well as a change in the behaviour of key oil producers, he said.

In September, the repo rate remained unchanged at 5.75 percent, after it was increased by 25 basis points in July from 5.5 percent.

In March and May the repo rate remained unchanged, after it was increased by 50 basis points from five percent in January.

-SAPA

November 2017

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